Process matters. Are you a “win all” type negotiator implying win everything at all costs? That is, you win and they lose. By contrast, are you a win-win negotiator oriented towards expanding the pie negotiator so that both you and the other party can both do better? That is focusing on mutual gains.
It is important that you be clear from the very beginning what your interests are relative to process and ask theirs before you proceed.
By clarifying this right up front, you set the tone, and it becomes clear where you and the other party is coming from. This needs to be determined so that each of you clearly understands the other side’s perspective to avoid confusion.
Consider a case where the IRS had applied penalties against a CPA firm and three employees.
The IRS had spent years on this initiative, had looked at over 25 audits of work completed by the firm over a seven-year period and concluded that these penalties needed to be applied. If the firm were found guilty of the penalties, the firm, two of the partners and one of the senior accountants would have had to pay penalties and this would have negatively impacted the firm and the three individuals going forward. This was very serious.
The case was unagreed on exam and was headed for Appeals. At the beginning of the session the Appeals Officer indicated that he had read through the file and he thought of the four penalties the IRS has a very good case on two of the penalties and that the taxpayer had some credibility with two of the penalties being dropped. Clearly, he thought there was room to compromise.
By comparison the lead attorney for the taxpayer opened with a statement that said anything less than a full concession by the IRS was not acceptable as any penalty on the firm or any of these individuals could potentially result in very negative consequences to the individuals or the firm. The taxpayer was prepared to go to court if the IRS was not willing to concede all four penalties at Appeals.
In this instance the taxpayer was in a win at all costs perspective. Once that was clarified that changed the tone of the meeting from the offset.
As a member of the taxpayer’s team with three attorneys we were able to demonstrate over the course of the all day meeting several key elements:
- The IRS penalty coordinator was biased and “owned the issue”. This means that he had not remained neutral and simply applied the law. Rather, he was vindictive and provided biased facts rather than all of the facts associated with the case. As such he was oriented towards applying the penalties no matter the facts in the case. He had invested years on this investigation and he personally wanted to be sustained given his efforts.
- The penalty files were not developed consistent with the Internal Revenue Manual requirements. They were incomplete, had not been properly reviewed and were inconsistent with IRS policy.
- Inference and inuendo was the norm rather than a full development of the facts.
- The five cases chosen by the IRS penalty coordinator as representative were 5 to 7 years old compared to more recent cases where IRS audits had resulted in no change and minimal adjustments.
- The original cases were prepared based on temporary code and regulations sections with sunset clauses during a period of transition. The code section and regulations had since been finalized. During the period of transition, the code changed four times and temporary, proposed and final regulations changed five times.
- A GAO study reviewed the code section and analyzed preparers nationally. This firm’s audit results were in the upper 75 percentile compared with peers.
The Appeals Officer stated at the end of the day that he clearly saw that two of the penalties were erroneous and he was leaning towards dismal of the other two penalties, but he wanted to do additional research. He indicated he would contact the lead attorney for the taxpayer in two or three weeks. Three weeks later he responded that all of the penalties were dropped.
- stating the intentions up front,
- being prepared with a flexible agenda,
- having practiced ahead of time who would speak to various points,
- focusing on listening,
- enhancing relationships during breaks,
- being patient, persistent and understanding, and
- being professional to not make it personal throughout the process
this made it possible to reach an agreement with the other side that was acceptable to all parties involved.
By appealing to the other side’s concerns, focusing on efficiency, and offering to help with procedural elements
this allowed the IRS Appeals Officer to work with the taxpayer and make an appropriate decision.
Finally, the client appreciated the final decision and the Appeals Officer was able to resolve the issue timely. Additional time and resources could have been expended with a different approach, but being up front with expectations, this allowed the IRS to do the right thing consistent with its mission statement and values.
Set up the other side for success by being fully prepared, rehearsing roles, having a flexible agenda and listening to the other side. By developing relationships, actively listening, educating judiciously and focusing on closure it was possible to reach an amenable solution in a timely fashion. You can apply these techniques too.
To read more on this approach read this article from the Harvard Law School Program on Negotiation.
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Check out my website, books and resources. I am an international speaker. I speak on how to overcome conflict with collaboration by taking advantage of the collaboration effect TM enhancing relationships, resources and revenues. My service areas are related to helping clients resolve conflict and enhance leadership. I have written 11 books including The Servant Manager and Peaceful Resolutions. I may be contacted directly at email@example.com and at (651) 633-5311. [Michael Gregory, NSA, ASA, CVA; MBA]